Crypto fears, high costs make for muted ETF debut

The first funds giving investors direct exposure to bitcoin hit the boards – but strict rules are leaving some market participants wary about offering the products to their customers.

ETF Securities’ Cliff Man, Evan Metcalf and Kanish Chugh at their Sydney offices ahead of the launch of their new products on Thursday. Picture: John Feder

The first cryptocurrency ETFs to hit trade on Australian exchanges made an underwhelming debut – amid complaints sky high capital requirements are keeping away wary market participants.

Of the three listings on Cboe Australia – previously Chi-X – it was ETF Securities’ 21Shares Bitcoin product which managed the highest volume, some $955,000.

Then came its twin fund, the 21Shares Ethereum ETF, which saw $604,000 in traded volume. Third was rival bitcoin fund Cosmos Purpose Bitcoin Access ETF, which traded roughly $454,000.

By comparison, the November launch of the BetaShares Crypto Innovators ETF on the ASX saw a record $39.7m of trading value.

Unlike that ETF, which provides exposure to crypto-related assets, the new products allow investors to directly buy into cryptocurrencies – and the extreme swings in their values.

READ MORE:Last-minute delay for ETF Securities cryptocurrency pioneers | Crypto ETFs, some of Australia’s first, to list on Cboe Exchange

The debuts did not come at the most auspicious time. The value of bitcoin has plummeted in the last seven days, off some 30 per cent. It sank another 10 per cent, to less than $US28,000 ($40,700) on Thursday. Its rival, Ethereum was down even more.

But the scepticism around the cryptocurrencies extended to the market, with ASX Clear imposing significant requirements for participants – keeping many away.

ASX Clear required margins of 40 per cent on bitcoin ETFs, and 50 per cent on ethereum ETFs.

That made key participants including nabtrade and bell direct think twice about the products.

“We are closely monitoring the demand of cryptocurrency ETFs and proactively speaking to our customers about the opportunity these instruments present, however, at this early stage we have decided not offer these on the nabtrade platform,” said Adrian Hanley of nabtrade, one of the country’s biggest retail brokers.

In an early note to customers, Selfwealth described the clearing costs as “exceptionally high” and said it could “limiting our clients’ ability to purchase” the products.

Others, like Macquarie’s retail equities trading business, are yet to be fully connected to Cboe.

Kanish Chugh, the head of distribution at ETF Securities, said it was “disappointing that not all Australian investors will be unable to access these ETFs because of higher margin requirements set out by ASX Clear”.

“We understand some of the largest and most popular platforms are providing access. Investors can always ask their broker or platform if they support trading of bitcoin and Ethereum ETFs.

“The crypto market has never been more volatile, and this has impacted trading volumes across every venue. Nonetheless, we are still seeing investors use the pullback as an opportunity to enter at a lower price,” he added.

Despite the lower-than-expected volumes, Cosmos Asset Management chief Dan Annan said he was “happy with how the product traded“. “There is no doubt that some investors pondered and are cautious with the current market volatility; however, investors with a long-term view on exposure to Bitcoin and cryptocurrency will understand that this is a good opportunity for an entry point, and therefore, we hope to see an increase in volumes in the days ahead,” he said.

 

An ASX spokesman said the margins reflected “international practice in this area and no-one has told us that our margins prohibit their offering the product”.

“Our clearing participants are all interested that ASX Clear has appropriate risk management settings and that is the feedback we have received from them for these products,” he said.

And while many remained on the sidelines, others including the highly-popular CommSec platform, CMC Markets and Superhero did support trading.

Superhero’s chief executive, John Winters, said the ETF Securities bitcoin fund was the third most traded stock on his platform, while the ethereum fund was also in the top ten. “But it’s notable that when the (Betashares ETF) launched … it was significantly more popular,” he said.